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Putin says Russia faces big economic challenges, must keep inflation in check

Published 08/22/2023, 11:41 AM
Updated 08/22/2023, 11:46 AM
© Reuters. Russian President Vladimir Putin chairs a meeting on economic issues via video link at the Novo-Ogaryovo state residence outside Moscow, Russia April 11, 2023. Sputnik/Gavriil Grigorov/Kremlin via REUTERS/File Photo
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MOSCOW (Reuters) - Russian President Vladimir Putin said on Tuesday that inflationary risks were rising and he told the government and central bank to keep the situation under control.

The threat that surging prices will erode living standards is a concern for Putin as he prepares to launch an expected bid to be re-elected next March for six more years in the Kremlin.

At the same time, Russia's budget is under strain from what Putin calls its "special military operation" in Ukraine, and the central bank was forced to jack up interest rates last week to halt a slide in the rouble.

"The scale and complexity of the tasks we are solving, and continue to solve, are of a really exceptional nature," Putin said in televised remarks to government officials.

He said the overall situation was stable, but required vigilant monitoring and timely decisions.

After double-digit inflation in 2022, the pace of price rises dropped in the spring, but inflation is now above the central bank's 4% target once more and rising steadily.

Russia's widening budget deficit and stark labour shortage have contributed to rising inflationary pressure all year. When the rouble tumbled below 100 to the dollar last week, the central bank was forced to respond by raising interest rates by 350 basis points to 12%.

The rouble has since strengthened sharply, also helped by exporters increasing sales of their foreign currency revenue following discussions with Russian authorities.

Putin said volatility on financial markets had hampered companies' investment decisions and was something that needed to be brought under control.

"The government and central bank need to actively use the instruments available to them," he said. "Work is needed, among other things, on limiting unproductive, speculative demand, controlling the outflow of capital, monitoring the behaviour of the main participants of the financial market."

Putin added that it was important for Russia to maintain a high level of industrial output.

© Reuters. Russian President Vladimir Putin chairs a meeting on economic issues via video link at the Novo-Ogaryovo state residence outside Moscow, Russia April 11, 2023. Sputnik/Gavriil Grigorov/Kremlin via REUTERS/File Photo

Rising military costs are supporting Russia's modest economic recovery this year with higher industrial production, but have already pushed budget finances to a deficit of around $29 billion - a figure compounded by falling export revenues.

Putin said the budget was forecast to be in surplus for July to September. "For the year as a whole, the excess of expenditure over income will be at the planned level - around 2% of GDP," he said.

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